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CLIMATE CHANGE-
IMPACT ON AGRICULTURAL INSURANCE
presented by
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IMPACT OF CLIMATE CHANGE
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IMPACT OF CLIMATE CHANGE – Natural
Disasters
The Munich Re NatCatSERVICE data on loss relevant natural disasters
already show a strong upward trend in the last 30 years.
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IMPACT OF CLIMATE CHANGE – Precipitation
• Global climate change will affect the water cycle, likely creating perennial droughts
in some areas and frequent floods in others.
• One expected effect of climate change will be an increase in precipitation intensity:
a larger proportion of rain will fall in a shorter amount of time than it has historically.
Blue represents areas where climate models predict an increase in intensity by the
end of the 21st century, brown represents a predicted decrease (Map adapted from
the IPCC Fourth Assessment Report.).
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IMPACT OF CLIMATE CHANGE – Drought
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IMPACT OF CLIMATE CHANGE ON DEVELOPING
COUNTRIES
The German Watch Climate Risk Index, which ranks the countries according
to their extreme weather risks, shows that all countries in the top ten of this
index are developing countries, led by Myanmar, Honduras and Haiti.
Long Term Climate Risk Index (CRI)
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CLIMATE IMPACT ON AGRICULTURE
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Agricultural Production – Current and Forecast
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Need for Crop Insurance in India
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Farmers Condition in India
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AGRICULTURAL INSURANCE – Insurance
schemes
•In existence since the past three decades
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AGRICULTURAL INSURANCE – Current insurance
schemes
Types of Crop Insurance available in India
• Modified national agricultural scheme : MNAIS
• Weather based crop insurance scheme : WBCIS
S.No National Agricultural Insurance Schèmes (NAIS) Weather Based Crop Insurance Scheme (WBCIS)
Parametric weather related risks like rainfall, frost,
Practically all risks covered (drought, excess rainfall, flood, heat (temperature),humidity etc.) are covered.
1
hail, pest infestation, etc.) However, these parametric weather parameters
appear to account for majority of crop losses
Technical challenges in designing weather indices
Easy-to-design if historical yield data up to 10 years’ is
2 and also correlating weather indices with yield
available
losses. Needs upto 25 years’ historical weather data
Basis risk with regard to weather could be high for
High basis risk [difference between the yield of the Area
3 rainfall and moderate for others like frost, heat,
(Block / Tehsil) and the individual farmers]
humidity etc.
4 Objectivity and transparency is relatively less Objectivity and transparency is relatively high
Quality losses to some extent gets reflected through
5 Quality losses are beyond consideration
weather index
6 High loss assessment costs (crop cutting experiments) No loss assessment costs
7 Delays in claims settlement Faster claims settlement
Government’s financial liabilities could be budgeted
Government’s financial liabilities are open ended, as it
8 up-front and close ended, as it supports the premium
supports the claims subsidy
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subsidy.
AGRICULTURAL INSURANCE – Pradhan Mantri
Fasal Bima Yojana (PMFBY)
Objectives of PMFBY
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AGRICULTURAL INSURANCE – Pradhan Mantri
Fasal Bima Yojana (PMFBY)
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AGRICULTURAL INSURANCE – Pradhan Mantri
Fasal Bima Yojana (PMFBY)
• Sum insured same for both loanee and non-loanee farmers and equal to
Scale of Finance fixed by DLTC and no other mechanism to be accepted.
• The SI will be calculated by multiplying the MSP of a crop with the average
seven-year ‘threshold’ yield (excluding calamity years) for the particular
village panchayat area where it is grown.
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AGRICULTURAL INSURANCE – Risks Covered
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Crop Insurance – Pricing
• For selecting the actuarial premium rates, volatility of the actual yield is
assessed based on yields observed in the past for different crops and
season and data provided by the State Government.
• The premium is arrived at on the basis of Loss Cost (LC) i.e. Claims as % of
Sum Insured (SI) observed in case of the notified crop(s) in notified unit
area of insurance during the preceding 10 similar crop seasons (Kharif /
Rabi)
• Regression techniques to regress the yield against many factors including
weather based parameters
• Weather based insurance – dependency between weather parameters and
yields – multivariate distributions, flexible time series model, copulas and
regression modelling
• Allocation of districts on cluster basis to IAs through transparent bidding
• Cluster to be formed –based on variable risk profile of states
• Expenses towards management including capital cost and insurer’s margin.
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Crop Insurance – Data sources
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Crop Insurance – Issues and challenges
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Crop Insurance – Reserve valuations and
challenges
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Product design & Pricing considerations…
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Product design & Pricing considerations…
•Claims
•Likelihood of frauds and fraud management
•Other factors
•Prior experience in administration of the scheme
•Ability to execute in more than one states, associated infrastructure
•Advances in technology (Drones, GPS, RST)
•Advancements in fertiliser treatments, seed & crop enhancements
•Crop Policy administration by the state and centre
•Initiatives for the farmers
•Competition
•Changes in the irrigation system
•Profit margin
•On the risk attitude of the company and competitive pressures
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Agricultural Insurance…Future Crops & product
Development
Future Crops
•Provide crops that are more resilient to climate shocks and can yield on
soils that are marginal for major commodity crops.
•Diversification also provides opportunities to use non-food crops that grow
in marginal environments as sources for animal feeds and biomaterials.
•Genetically modified crops
•Change in cultivation and harvesting methods.
Some drought-stressed crops like cassava, flax, maize and sorghum plants, when then exposed
to sudden large amounts of rain that lead to rapid growth, in turn accumulate hydrogen cyanide,
more commonly known as prussic acid.
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Agricultural Insurance…Changes in the future
operating environment
Initiative by the Government
• Steps have been taken to improve soil fertility on a sustainable basis through
the soil health card scheme.
• Support the organic farming scheme ‘Paramparagat Krishi Vikas Yojana’
• Improved access to irrigation through ‘Pradhanmantri Gram Sinchai Yojana’.
• Enhanced water efficiency through `Per Drop More Crop.
• Rs 5300/- cr allocated towards micro irrigation, watershed development and
‘Pradhan Mantri Krishi Sinchai Yojana’;
• The state governments are compelled to allocate adequate funds to develop the
agriculture sector, take measures to achieve the targeted agricultural growth rate
and address the problems of farmers.
• Agreements with 63 countries would provide better agricultural facilities in areas
such as research and development, capacity building, germ-plasm exchange,
post-harvest management, value addition/food processing, plant protection,
animal husbandry, dairy and fisheries.
• Govt has allocated Rs 25,000 crore (US$ 3.9 billion) for the Rural Infrastructure
Development Fund (RIFD), Rs 1,500 crore (US$ 231 million) for the long-term
rural credit fund, Rs 45,000 crore (US$ 6.93 billion) for the short-term
cooperative rural credit finance fund and Rs 25,000 crore (US$ 3.85 billion) for
the short-term Regional rural bank (RRB) refinance fund.
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Agricultural Insurance…Conclusion
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APPENDIX
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Agricultural Insurance… Major agricultural crops
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Agricultural Insurance… Major agricultural crops
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Agricultural Insurance… Major agricultural crops
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